P&C Insurance Industry

Part
01
of four
Part
01

P&C Insurance Industry: SWOT

Natural catastrophes such as floods, wildfires, and hurricanes are potential threats to the U.S. property and casualty insurance (P&C) industry. However, the signing of the federal tax reform into law in 2017 ensures the profitability of companies in the industry as a result of the lower corporate tax rate.

Strengths

  • In 2019, the U.S. property and casualty insurance (P&C) market generated $60 billion in revenue, signifying a 66% rise from 2018.
  • Within the first quarter of 2019, the industry generated a net profit of $34.8 billion.
  • The market recorded $6.5 billion underwriting gain in the same period which is boosted by an "increased underwriting discipline, continued rate increase, lowers catastrophe loses, and an improving commercial and auto market."
  • A report by Fitch Ratings opines that the overall direct premiums written in the U.S. P&C market would grow by 4.4%, while net premiums written would grow by 3.9% in 2020.
  • The report also hinted that harder market conditions in the industry will prevail in 2020, where a hard market is defined as one in which "pricing and conditions are consistent with generating an adequate or better return on capital."
  • This is as a result of companies adjusting their terms and conditions and/or implementing higher rates following two consecutive years of a low-interest rate and severe losses.

Weaknesses

  • The U.S. P&C market is highly fragmented with the top 10 groups having a 47% share of the market.
  • As a result of this, insurers with higher capital look to acquire smaller insurers to increase their market share. This has pushed many smaller insurers out of business.
  • This is responsible for the number of P&C filers in the U.S. dropping from 2,838 in 2008 to 2,583 in 2019.
  • Furthermore, "stricter lending standards, low sales inventory, and slow growth in income to house prices" are factors contributing to the overall decline in sales in the U.S. P&C market.

Opportunities

  • In 2017, President Donald Trump signed the federal tax reform which reduced the "corporate income tax rates of P&C insurers."
  • This law continues to ensure a sustained period of profitability for companies in the P&C industry as a result of the lower corporate tax rate.
  • The law encouraged companies to bring capital from foreign subsidiaries into the U.S. at lower tax rates.
  • Technological development such as virtual and mobile claims adjusting to "remotely measure losses, quantify damages, and process customer payments more efficiently" presents an opportunity for companies in the U.S. P&C industry to reduce operational cost, improve customer experience, and improve competitive edge by
  • Also, consumers in the U.S. are "compelled by law or contract to purchase property and casualty insurance". Therefore, there is an opportunity for companies in the industry to increase their customer base.

Threats

  • The U.S. P&C market is constantly threatened by natural catastrophes such as wildfires in the southwestern and northwestern regions, and flooding in the midwestern regions around the Mississippi and Missouri rivers.
  • In 2017, the industry recorded catastrophic losses of about $104 billion as a result of hurricanes Harvey, Irma, and Maria alone.
  • The market is also threatened by "future premium increases, cyber risk, limitations on coverage."
Part
02
of four
Part
02

P&C Insurance Industry: AIG SWOT

AIG Property & Casualty's strengths rest in their large P&C network, use of industry-recognized processes, overall financial stability, increasing profits, solid customer service, and their established presence in the field. Their weaknesses show in terms of their stock ROI compared to industry standards, recent financial losses, and nonexistent social media presence as it pertains to their P&C subsidiaries. The company has opportunities in the realm of increasing their geographic share, undergoing an operational transformation, and provision of coverage for cyber incidents related to P&C. The company is further threatened by large catastrophes that result in major property losses and in an influx of claims, industry-wide pressure to increase rates, and changes in society that result in defamation lawsuits against AIG's insureds which AIG could be deemed responsible for. A deep dive into these findings has been provided below.

Strengths

  • Large Network: AIG is home to "one of the world's most far-reaching property casualty networks," according to the company's annual report.
  • Industry-Recognized Processes: The company relies on "industry-recognized catastrophe models and applies proprietary modeling processes and assumptions to arrive at loss estimates."
  • Financial Stability: In 2018, the company successfully tackled issues regarding volatility and severity "by reducing gross and net limits in property and casualty."
  • Increasing Profits: As of August 2019, AIG's CEO stated that the company's P&G unit was "on track to report an underwriting profit for the full year".
  • Solid Customer Service: AIG provides their P&C customers with a 'Property Claims Promise' which "ensures property policyholders will be provided with immediate working funds of 50% of their share of the agreed estimate for property damage/repairs, clean-up costs, and extra expense/increased cost of working, within 7 days."
  • Established Presence: AIG has 95 years of experience in the P&C sector and employs 650 commercial property underwriters, over 600 risk engineers, 250 natural catastrophe modelers, and 350 commercial property claims professionals globally.

Weaknesses

  • Stock ROI: Shareholder return on AIG common stock has been significantly underperforming compared to the cumulative total return of the S&P's 500 Property & Casualty Insurance Index ever since 2015, with returns in 2018 hitting an all-time low since 2013 and showing significant decreases since 2016. In 2018, AIG common stock returns were at $84.64, whereas returns for the S&P 500 Property & Casualty Insurance Index were at $171.10.
  • Recent Losses: The company's P&C business, although large, has witnessed losses that are higher than expected in recent years, according to an article published in August 2019.
  • Social Media Presence: Although AIG has social media accounts for their main brand, they do not have any accounts for their various subsidiaries, including their P&C subsidiaries.

Opportunities

  • Increasing Geographic Share: In the company's 2018 annual report, AIG states: "In 2018, 5.7 percent of our property casualty direct premiums were written in the state of California, and 16.4 percent and 7.1 percent were written in Japan and the United Kingdom, respectively. No other state or foreign jurisdiction accounted for more than five percent of our property casualty direct premiums." This suggests that there is opportunity for the company to work on increasing the shares of their P&C direct premiums that are written in other geographies.
  • Operational Transformation: AIG's head of property-casualty operations and COO, Peter Zaffino, states that the company plans to work on modernizing their workflows and businesses.
  • Cyber Coverage: As of January 2020, AIG's P&C policies started to "affirmatively cover or exclude physical cyber exposures." The company stated that doing so was in an effort to address "market concerns that traditional commercial insurance policies across the industry, from property to general liability, are often silent about cyber coverage." Since 2014, AIG has been making a multi-year transition towards affirmative cyber coverage. These insights suggest there is likely more opportunity for AIG to dabble in the realm of cyber when it comes to P&C coverage.

Threats

  • Large Catastrophes: The P&C industry is threatened by costly, global catastrophes including things like wildfires and other types of major loss events that result in a rapid influx of claims. AIG's P&G segment is directly affected by such events, as evidenced by the fact that recent reports show that the company's P&G segment profitability has been rebounding in recent quarters due to a smaller number of such events taking place compared to previous years.
  • Increasing Rates: Due to market surpluses and customers located in high-risk areas, the P&C market is currently faced with pressure to increase rates. In 2019, it was announced that AIG had been increasing their rates across the board.
  • Defamation: According to a 2019 P&C industry report published by USI National Practice Leaders, one of the key challenges currently facing the industry is "changing social perspectives and a growing awareness of sexual misconduct over the past year have led to more reported accusations and heightened dialogue over equal pay, wrongful termination and harassment." AIG's P&C segment is directly threatened by these societal shifts as they can lose money as the result of insureds who face defamation lawsuits; such was the case when courts agreed that AIG P&C was required to cover Bill Cosby's defense against sexual harassment claims as a condition of his property insurance.

Research Strategy

To conduct this research, we first began by analyzing AIG's annual report as these reports usually offer a wealth of insights that can be useful for compiling a SWOT. However, AIG's annual reports are largely lacking information specific to their P&C segment, which seems to be the result of the fact that the company doesn't provide many specific details about their various product lines. Instead, P&C activity appears to be condensed in the report under the 'General Insurance' umbrella. As such, we pulled as much P&C specific insight from their annual reports and proxy statements as possible and from there our team resorted to digging up information from trusted media sources and press releases.
Part
03
of four
Part
03

P&C Insurance Industry: Nationwide Insurance SWOT

Nationwide Insurance has been in existence for over 92 years. It boasts excellent financial strength and A rating from companies such as Moody's and Standard & Poor's and others.

Strengths


Weaknesses

  • Nationwide Insurance is weak in auto and home insurance.
  • Customers have complained that they provide limited discounts and coverage as its car insurance is not available in Alaska, Hawaii, Louisiana and Massachusetts.
  • It has also been said that they do not provide rideshare.
  • Nationwide charges higher rates for drivers with questionable driving records.
  • Reviews from customers have shown that the insurance company does not always address car insurance claims in a manner that leaves customers satisfied. Four "loyal" customers have explained their experiences and discourages others from using their service.

Opportunities

  • Nationwide has the opportunity to grow by integrating technology in their operations.
  • There is an opportunity to upgrade their use of robo advisors. It is believed that by 2025, 58% of Americans will be using robo advisors and 71% would like the service coupled with the human counterpart.
  • Flood insurance is another area that Nationwide could explore for opportunities. This is brought about by advances in the reformation of regulations and modeling technology. Between 2016 and 2018, there was an increase of 70% in private flood insurers premium of $644 million.
  • Based on the high level of uncertainty in the world's economy, it is believed that there will be opportunities for insurance companies to consolidate. This is believed to be true, especially since interest rates and uncertainties exist in the financial market.
  • To stay above these uncertainties, insurers could merge and acquire smaller players to build its market share, specialize, and diversify its services.
  • Opportunities also exist to meet customer demands for digital technology. It will improve the quoting experience for agents, customers, and customer service representatives.

Threats

  • One threat affecting Nationwide is the low interest rates in the industry. This can affect their ability to cover their expenses and contractual obligations.
  • The insurance market is struggling to keep abreast of the changes in technology such as augmented reality, digital technologies and networked devices. This can be overcome by investing in platforms and solutions that will help to minimize the risk.
  • Another threat to Nationwide is the possibility of outdated technology infrastructure still being in use by the company. This can affect their ability to grow and control cost, address customer needs and business demands.

Part
04
of four
Part
04

P&C Insurance Industry: Assurant SWOT

With over 125 years of experience in the insurance industry, Assurant Insurance boasts of innovative products as well as being one of the best companies in diversity and inclusivity. However, the company has a minimum market share in the health and solutions segments.

Strengths

  • With a holding capital of $473 million, Assurant Insurance is a company with a track record of outperformance. They have about 35 million mortgage loans tracked, 46 million mobile devices connected and protected, 2 million rental units secured, and 1.9 million families with end-of-life arrangements.
  • They have highly innovative products and solutions. Recently, the company launched a security deposit alternative product known as Flex deposit. Flex deposit "gives property managers a simple, easy-to-implement alternative to traditional security deposits, enabling them to attract residents who might find a traditional deposit cost-prohibitive."
  • Assurant is one of the best company in diversity and inclusivity in the industry. As such, they have been recognized as the Best Place to Work For LGBTQ Equality in two consecutive years. They have also been named a Winning Company by 2020 Women on Boards Winning Company.
  • The company has also been keeping up with the changing consumer trends by investing in research, which has been a vital tool in helping them create innovative solutions that meet the needs of their customers.

Weakness

  • Several customers have complained that the company takes long to approve their claim.
  • Assurant Insurance has a smaller market share than its competitors in the solutions and health segments, which are 1.6% and 0.55%, respectively.
  • The integration of their acquired businesses is likely to result in additional costs and other significant challenges. For instance, the acquisition of TWG may not be profitable as expected. This is because it has several risks, difficulties, and uncertainties, and it would require significant expenditures.
  • Some of the challenges associated with the acquisition of TWG include inaccurate assessment of risk and liabilities, difficulties in getting new customers and keeping the existing ones, challenges in integrating both corporate and employee cultures, among others.
  • Their stock prices would decline if integrating the acquired businesses takes more time than expected, or they fail to attain financial benefits expected by investors.

Opportunity

  • In the United States, "consumers are compelled by law to purchase property and casualty insurance." Assurant Insurance can take advantage of the opportunity to earn more revenue by increasing its product offering and expanding its customer base.
  • Also, as the industry is continually shaped by technological innovations, Assurant Insurance can invest in new technologies like AI to improve their customer experience and improve their productivity

Threats

  • The current US tax reform could also have negative impact on the company's financial conditions and operations.
  • Their investments are "subject to market-wide risks and fluctuations, including in the fixed maturity and equity security markets, which could impair their profitability, financial condition, and cash flows."
  • Catastrophe and non-catastrophe losses could lead to material losses and lower their profitability.
  • A decline in consumer spending, limited credit availability, deterioration of the real estate and mortgage markets, high-interest rate, rise in the rate of inflation, high rate of unemployment, and disruptive geopolitical events could also hurt the company's business segments.
Sources
Sources